NAB board should have said act over fees

National Australia Bank's chairman admits the board should have told management "enough is enough" and to refund customers charged fees for no service.

NAB spent an "absurd" three years arguing with the corporate regulator about the compensation for customers charged fees for advice they never received.

Its chairman Ken Henry said NAB's reputation has been tarnished considerably by the fees-for-no-service issues and the way they have been handled.

The board of directors agreed they should have done something differently, the former Treasury secretary told the banking royal commission.

"I wish that we had said to management, well certainly two years ago, perhaps even earlier, that we had said 'Enough is enough. Forget about negotiating with ASIC. Just do it - remediate customers'," Dr Henry said.

It was only in September this year that NAB reached agreement with the Australian Securities and Investments Commission about how to handle the adviser service fees compensation.

ASIC told NAB in May that its latest proposal retreated even further from what was in customers' interests and failed to adequately reflect any insight into the seriousness of the bank's suspected misconduct.

Dr Henry said he was appalled that NAB appeared to have "taken a U-turn" after it had already taken so long to achieve effective customer remediation.

Senior counsel assisting the commission Rowena Orr QC asked Dr Henry why he did not tell management in May: "Enough is enough. This is harming our customers. It's harming our reputation with ASIC. Get it fixed and get it fixed now."

Dr Henry said the board did say that at some point.

"We were pretty cross."

But during one of several heated exchanges, Dr Henry refused to directly answer whether the board should have stepped in earlier.

He limited his answer to: "I wish we had, let me put it that way."

The inquiry heard it was only this year that some NAB executives had their short-term bonuses cut over the fees-for-no-service issues and other significant problems.

Dr Henry conceded the board "probably should have" made similar adjustments in earlier years.

But he defended the board's decision to pay executives their full bonuses in 2016, despite being unhappy that the overall bonus pool was not being reduced.

Ms Orr suggested the board could have sent a strong message by reducing the bonus pool in response to very significant compliance issues.

Dr Henry stood by the decision, even quipping: "Well, we could have fired everybody, I suppose."

He added that NAB did fire some people, but at more junior levels.

NAB has had a number of fees-for-no-service problems, including charging the estates of more than 4000 dead superannuation customers $3 million.

While NAB has agreed to remediate clients of its employed financial planners, it is still talking to ASIC about adviser service fees charged by authorised representatives of its advice licensees.

ASIC has taken NAB to court over a separate fees-for-no-service issue involving $100 million charged to hundreds of thousands of superannuation customers.